Deforestation and Development in a Small Open Economy

Our economy faces world prices and starts with a large endowment of land in forest and a small endowment of land in agriculture. Clearing of forested land yields marketable timber and a unit of land for agriculture. Early, the high price of agricultural land drives the clearing process. Later, the profit from marketing timber from the cleared land drives the process. Dates of “phase transitions” are endogenous. We also set out a submodel of perpetual cyclic clearing and reforesting, and show that it when cyclical harvesting—regrowing is optimal, the extent of clearing can be relatively large.